Paul Levy: How High-Deductible Plans Affect Your Health Care Costs

Monday, June 18, 2012

Paul Levy, GoLocalWorcester MINDSETTER™

Paul Levy, GoLocalWorcester MINDSETTER™

Someone once showed me an analysis that demonstrated that the sum of workers’ salaries and benefits has stayed remarkably constant in real terms over the last two decades. This means that companies have compensated for the increasing cost of health insurance over time by holding back on wage increases.

You can understand this. After all, if companies are not able to increase the price of goods and services they sell to the public, they need to hold factor costs relatively constant. So if it was costing them more and more to provide health insurance to their workers, an offsetting amount would have to be removed from possible wage increases.

This dynamic is still in place, but it is showing up in a different way, by shifting costs to workers in the form of higher deductible health insurance policies. Deductibles are different from co-pays, where you plunk down $15 or $20 for each appointment or prescription. With deductibles, you pay the first costs incurred as you and your family make use of the health care system, the entire cost of the office visit or of the prescription, until a preset amount is reached. After that level is reached, you still pay the co-pays. A recent story in the Washington Post documented this trend.

Currently, this kind of high-deductible policy is often combined with health saving accounts that are funded by the employer. These accounts let patients buy medical services and drugs with pretax dollars. So, although your insurance plan might require you to pay more of a deductible out of your own money, you could still use the HSA to cover those out-of-pocket expenses.

But the article suggested that this remaining employer contribution, the HSA, is likely to evaporate over the coming years. “Half of all workers at employer-sponsored health plans — including those working for the government — could be on high-deductible insurance within a decade, according to a new paper from Rand Corp.”

Is this good or bad? Supporters of high deductible plans say that the only way to make sure consumers have some “skin in the game” when it comes to society’s rising health care costs is to assign some of those costs to the consumers. If you know, for example, that you will pay for the first $1000 of your annual health care costs, perhaps you will shop around when you need that MRI. Instead of going to the local hospital, you will go to a specialized imaging center. Perhaps, too, you will be less likely to go the emergency room for something that could wait a day or two.

On the other hand, opponents say that this kind of approach is unfair to people with chronic diseases like arthritis or diabetes. They argue that these people make fewer discretionary choices when it comes to treatment.

Some people suggest that companies are “word-smithing” the trend to make it sound like it is in the public interest, even though it is really driven by corporate finances. The article quotes Jonathan Oberlander, a health policy professor at the University of North Carolina. “Employers like it because they’re providing less coverage. If they can relabel it as consumer-driven then it even sounds good.”

One variant on high deductible plans is to allow consumers a lower deductible if they get their medical care at a “limited network.” This would be a group of doctors and hospitals that agree to charge the insurance company less than a group of higher paid doctors and hospitals in the community. You, as consumer, would choose. If you really wanted to go to Dr. Really Famous at the local academic medical center, you would be responsible for much of the cost, but if you went instead to Dr. Relatively Unknown at a community hospital, you would only be responsible for a small co-pay.

Perhaps, too, your deductible would be waived if you agreed to participate in an annual health care assessment. The Post article told of one such plan: “Chrysler introduced a preferred-provider plan with family deductibles as high as $3,400 for salaried workers.... The deductible falls to $1,000 for in-network care if employees receive a physical and take other steps such as completing an online health assessment.”

Of course, none of this works at all if the rates and charges assessed by doctors and hospitals are not transparent to the public . . . and if we have no quality indicators that tell us what we are getting for our money when we choose between Dr. Famous and Dr. Unknown. Thus far, where such information is available, it is woefully out of date, often two or three years old. If high deductible plans are coming our way, we should be demanding of our state government that both real-time price and quality data be available for all to see.